Fed’s Goolsbee says mild U.S. recession feasible

(Reuters) – A U.S. recession is certainly feasible as the Federal Reserve’s steep rate-hikes over the past year filters fully through the economy, Chicago Fed President Austan Goolsbee said on Friday, as he again urged the central bank to be prudent on policy.

“There is no way you can look at current conditions around the world and in the US and not think that some mild recession is definitely on the table as a possibility,” Goolsbee said in an interview with CNBC.

He was responding to a question about a forecast from Fed staff that banking sector stress would tip the economy into recession later this year. “The data show that and we’ve raised rates almost 500 basis points in a year,” he added.

The economy has begun to show signs of faltering because of higher interest rates as inflation pressures, by some measures, also continue to slowly ease. The Commerce Department reported on Friday that retail sales fell more than expected in March.

The U.S. central bank raised its benchmark interest rate by 25 basis points to a 4.75%-5.00% range at its March meeting as it nears a peak in rates.

Most Fed policymakers since then have continued to emphasize the need to focus on bringing inflation back to the central bank’s 2% goal, with the exception of Goolsbee and San Francisco Fed President Mary Daly.

On Friday, Fed Governor Christopher Waller added weight behind the prospect of another quarter percentage point hike on May 2-3 as he said the central bank’s lack of progress on bringing inflation down meant rates needed to move higher.

Atlanta Fed President Raphael Bostic told Reuters in an interview, also on Friday, the Fed could “hit the mark and hold” with one more rate hike.

Goolsbee said incoming economic data before the May meeting would inform his view on whether the Fed should raise rates again, in particular the extent of tightening in credit conditions following the collapse of two U.S. regional banks last month, even as he sounded wary.

“We’ve still got several weeks before the FOMC meeting so I don’t want to specify to the basis point what that is going to mean for what I am going to be for, but let’s just be mindful that we’ve raised a lot,” Goolsbee said. “It takes time for that to work its way through the system… let’s not be too aggressive.”

(Reporting by Lindsay Dunsmuir; Editing by Chizu Nomiyama and John Stonestreet)